Czech Republic extends reverse charge (again)
The Czech tax authorities have expanded the use of the reverse charge mechanism to wholesale supplies of selected telecommunication services.
Repeated reverse charge changes by the Czech Republic
The new rules apply as from 1 October 2016.
Czech Republic extended the reverse charge mechanism to electricity and gas last February. This mechanism was then extended to all supplies of goods and services made by non-established companies. And last year Czech Republic requested the European Commission to allow a general reverse charge mechanism on all domestic supplies. All these changes had a positive effect reducing VAT fraud in the country, so the Czech government has now extended this mechanism to the telecommunications industry.
Why apply the reverse charge mechanism?
Reverse charging VAT is an exception to the general rule on VAT. Normally, it is the supplier who must account to the tax authorities for any VAT due on the supply. However, for certain goods and services, the obligation to account for the VAT element of the transaction is ´reversed´ and passed to the customer. From an accounting point of view, this system is easy for the customer as it only requires the VAT element to be booked both, in the input VAT account and output VAT account, with the corresponding nil effect in the VAT position.
If your business is impacted by any of the recent reverse charge implementations in Czech Republic, you should take into account the new configuration of your ERP system as well as issuing compliant invoices and reporting these transactions correctly in your VAT return. Please contact us if you need help with any of these activities.